Cyngn Inc. (NASDAQ:CYN) Q1 2023 Earnings Call Transcript May 14, 2023

Operator: Greetings, and welcome to the Cyngn First Quarter 2023 Earnings Call. [Operator Instructions] It’s now my pleasure to introduce your host, Ben Mimmack, Head of Investor Relations. Thank you. Mr. Mimmack, you may begin.

Ben Mimmack: Thank you, operator, and thank you to everyone on the call for joining us today. The press release announcing Cyngn’s results for the first quarter ended March 31, 2023, is available at the Investors section of the company’s website at investors.cyngn.com. A replay of this broadcast will also be made available on the website approximately 1 hour after the conclusion of this call. Before we get started, I would like to remind everyone that this conference call and any accompanying information discussed herein contains certain forward-looking statements within the meaning of the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terms such as anticipate, believe, expect, future, plan, outlook and will and include, among other things, statements regarding the company’s continued development of its commercial products, expectations regarding sales and/or revenues, growth strategy, ability to deliver sustainable long-term value, ability to respond to the changing environment and operational focus.

Although the company believes that the expectations reflected in its forward-looking statements are reasonable as of today, those statements are subject to risks and uncertainties that could cause the actual results to differ dramatically from those projected. There can be no assurance that those expectations will prove to be correct. Information about the risks associated with investing in Cyngn is included in its filings with the Securities and Exchange Commission, which we encourage you to review before making an investment decision. The company does not assume any obligation to update any forward-looking statements as a result of new information, future events, changes in market conditions or otherwise, except as required by law. On today’s call, the company’s Chairman and CEO, Lior Tal, will discuss recent operating highlights; Chief Financial Officer, Don Alvarez, will follow with a review of the company’s financials for the first quarter of 2023.

Lior will then return to make a few concluding remarks before opening the floor for questions. And with that, I will turn the call over to Lior.

Lior Tal: Thanks, Ben. Good afternoon, everyone. Today, I am pleased to be reporting the significant progress we have made this quarter on a mission to bring autonomy to industrial vehicles, which is a total addressable market of over $200 billion globally. For those on the call who are still learning what we do, I will start with a brief overview and I encourage you to visit the website and especially our blog, blog.cyngn.com for more information. Cyngn is focused on solving the challenges associated with labor shortage, high cost of labor and the cost of accidents that arise from human error and negatively impact the global economy. We addressed these challenges with AI, robotics and data to produce self-driving software that can be applied to any vehicle to help industrial organizations get work done consistently, efficiently and safely.

As a developer and user of artificial intelligence, we’re excited to see that the AI world has come to an inflection point with the wider community now using and seeing the value of AI. We have been developing advanced learning-based algorithms for self-driving for many years. We believe the large-scale adoption of this technology is the future of the industrial world. The foundation of our technology is our Enterprise Autonomy Suite, or EAS. This is a suite of intelligent fleet management and analytics software that allows customers to manage the complex AI and robotics technology and delegate the driving of those vehicles to our self-driving solution known as DriveMod, using simple tools and interfaces. Across the different technologies that comprise EAS, Cyngn has 7 issued U.S. patents; 18 nonprovisional patent applications, of which 6 have already been allowed; and 20 pending PCT international applications.

Cyngn’s autonomy solution is available on new vehicles purchased from our OEM partners with the solution integrated off the line, but importantly, is also available as a retrofit on existing industrial feat using our turnkey hardware solution. The patent pending DriveMod Kit for our commercially released autonomous stock chaser solution can be installed in just a matter of hours. DriveMod Kit is an important element of our go-to-market strategy and allows for a scalable deployment for existing or new vehicles. By developing a fast, economical retrofit package for existing vehicles, our DriveMod Kit can simplify the transition to autonomous vehicles for companies that already have a fleet today. We estimate Cyngn’s significant market opportunity at more than $200 billion a year based on the estimated cost of employing drivers for approximately 5 million material handling vehicles that operate worldwide.

According to publicly available data, the global average annual cost to employ an individual to drive one of these vehicles is over $40,000. This is an expense that could be eliminated with Cyngn’s technology. The cost of labor and, therefore, the value of automation is significantly higher in Western economies and specifically in North America, which is where we’re focusing our current sales efforts. But even with the high cost of labor, industrial organizations, especially from the manufacturing and logistics, tell us that if they could hire more people now, they would do it without hesitation. But the shortages in the labor market prevent them. Trends in the warehousing, manufacturing and logistics space have high fixed cost as a percentage of their overhead, and the tight labor market makes it very difficult for them to run the most effective operation.

By using autonomy to operate their vehicles, customers can redeploy existing workers to more productive tasks and optimize their operation, improving efficiency and profitability. In addition, this improvement don’t factor in the increased productivity that autonomous operations of industrial vehicles alone. Our EAS solution doesn’t require brakes or vacations. They’re never distracted and doesn’t require periodic training as human operators do, which allows for more efficient driving. Cyngn’s technology is also safer. It doesn’t become distracted or break the rules. It follows guidelines strictly and ensures that safety is prioritized, reducing the expense of accidents and downtime from human error. In a study conducted last year at a business using our vehicle autonomy solutions, Cyngn’s technology improved the productivity of their operation by up to 33%.

Unlike self-driving robotaxis on public roads and highway AV trucking companies that are still years away from any large-scale commercial deployment, we are bringing autonomy to industrial vehicles used in private facilities to daily. Our stock chaser solution is commercially available, ready to ship and being actively deployed to customers and prospective customers. We signed our first commercial contract for the deployment of stock chasers with U.S. Continental for deployment in their Southern California facility at the end of 2022. And this employment went live in the first quarter of 2023, with fully autonomous stock chasers storing goods throughout the USC site. The deployment includes autonomous navigation, both indoors and outdoors as products are moved between buildings on the site.

Indoor and outdoor navigation is a differentiating feature of DriveMod advanced autonomy capabilities. During the first quarter, we brought our first Head of Sales on board. Chris Wright has a wealth of experience in the industrial automation space, and he’s already developing the sales funnel for the stock chaser solution. We’re seeing promising interest in our stock chaser DriveMod since we ramped up our sales effort. Many firms in the industrial automation industry are in the process of developing a single solution for a particular use case. Cyngn, however, has developed a software foundation that is vehicle agnostic and can be deployed on almost any industrial use case. Therefore, our commercial development focus is also on ensuring we are expanding our solution to more areas of customer demand.

We have a paid deployment engagement with a leading manufacturer of building materials using commercial and residential properties that uses thousands of forklift in its global operations. This project will expand the capabilities of EAS and our DriveMod solution to the most widely used industrial vehicle in the world. Forklift autonomy is a significant commercial opportunity. And we are excited that not only have we successfully validated development milestones and triggered payment under the development contract, but we have also increased the scope and size of the contract following the successful demonstrations. We’re targeting a 2024 release of a commercial version of the forklift autonomy solution. Another track of our product commercialization strategy is the expansion of EAS to the mining industry through an engagement with a Tier 1 OEM in this space.

The mining industry is an early adopter of automation technology and readily accepts the productivity and safety benefits of vehicle automation. We’re delighted to achieve state-of-the-art results with a novel application of a key drive on subsystem in the mining domain and received extremely positive feedback from our development partner. The commercial version of our mining solution is expected to follow the forklift solution into the market. As we move increasingly into commercialization mode, we continue to develop our leadership and management team. Last month, we welcomed on board Sean Stetson as Vice President of Engineering; and Felix Singh as Vice President of Engineering Services. Sean has over 20 years experience of commercializing emerging technologies and will be responsible for overseeing all hardware and software development on the engineering team as we expand the commercialization of our EAS capabilities.

Felix also has over 20 years of experience in robotics, automation and technology and will be responsible for quality assurance, customer success and support and streamlining development processes through the company. With Sean, Felix, Chris and several other extremely strong hires that we made recently, we have the core team that we need in place. Our management team has a wealth of experience as a leader in the industrial automation sector, and our concentration now will be on executing on the plan. We’re already seeing the impact of our strengthened leadership team as we released the latest major EAS update this month. EAS 9.0 makes our customer proposition even more compelling by adding new features such as return to home automation, intelligent queuing and additional vehicle insights.

We’ll continue to add features to our EAS platform, which is intended to help customers realize the full value of their autonomous fleet. The opportunity for Cyngn’s technology is significant. And our focus on the rest of the year will be on identifying those customers with right combination of unit requirement, insight specifications that will allow us to get fast short-term wins and high long-term upside. We expect that our sales team will secure additional sales channels and deployment as we move into the second half of 2023. We also anticipate that we’ll be disclosing the achievement of additional successful milestones on both our paid development projects as we move those towards commercially viable solutions. I look forward to updating you on all the commercial success as we move throughout the year.

Finally, we filed a universal shelf registration statement on Form S-3 with the SEC at the start of the month. Once it becomes effective, it will provide Cyngn with flexibility to access the capital market in the future if circumstances arise that would make the sale of securities advantageous to the company and its stakeholders. To summarize, during the first quarter, we continued our focus on commercialization that I outlined on our last earnings call. Our sales team is engaged with potential customers that we are confident will lead to additional commercial stock chaser deployments by the end of the year. We have met required milestones on the heavy industrial vehicle development project. And third and perhaps most excitingly, we have not only met development milestones in the forklift project, we have also extended and upsized the project to bring autonomy to this most widely use of industrial material handling vehicles.

For the rest of the year, our objectives remain unchanged, and I look forward to updating you on our further success in future calls. With that, I will turn the call over to Don.

Don Alvarez: Thanks, Lior. I’ll now take you through a brief summary of our financials. During the first quarter, we reported our second successive revenue-generating quarter as a public company and booked $873,000 in revenue, which was more than 3x the revenue we reported in the fourth quarter of 2022. Substantially, all of the first quarter revenue was related to the two nonrecurring engineering contracts that we signed with commercial partners to bring new vehicle types to the market. We ultimately expect these contracts to yield more than the initially reported $1.6 million, largely due to continuation of the projects with additional phases and increased scope towards productization. First quarter total operating expenses were $6.1 million as compared to $3.8 million in the first quarter of 2022.

The increase was primarily due to higher R&D costs related to additional headcount and contractors added over the past 12 months to support our technology. G&A expenses were also higher in the first quarter because of an increase in personnel-related costs and additional expenses to support both the overall growth of the company as well as public company responsibilities. Net loss in the first quarter of 2023 was $5.6 million or $0.17 per basic and diluted share. This compares to a net loss of $3.8 million or $0.14 per basic and diluted share in the corresponding quarter of 2022. We ended the first quarter with unrestricted cash and short-term investments totaling approximately $17 million. Working capital at the end of the quarter was $17.4 million, with stockholders’ equity of $19.4 million.

Additional detail on all of these numbers can be found in our earnings press release that we issued earlier today and the 10-Q that we anticipate filing with the SEC later this week. With that, I’d like to turn it back to Lior for his final remarks. Lior?

Lior Tal: It has been a very busy and productive quarter for Cyngn, with a focus on accelerating our go-to-market plan, generating revenues and expanding our product offering inside the warehouse to include autonomous forklift and beyond into the heavy industry and mining sectors. This progress is possible due to the great people we have assembled here, and I’d like to thank the Cyngn team for all their hard work. Now I’d like to open the call up for analyst questions.

Q&A Session

Operator: [Operator Instructions] And our first question is from Theodore O’Neill with Litchfield Research. Please proceed with your question.

Operator: Thank you. Our next question is from Poe Fratt with Alliance Global Partners. Please proceed with your question.

Operator: [Operator Instructions] Our next question comes from Darin Tuttle with Singular Research. Please proceed with your question.

Operator: Thank you. Our next question comes from Rommel Dionisio with Aegis Capital. Please proceed with your question.